Ensuring short-sighted tax policies do not restrict the benefits of aviation

A4E calls for taxes levied specifically on aviation to be removed, as they harm the economy, reduce social benefits, and are an ineffective way to pursue environmental goals.

Aviation generates economic and social value. It connects people and ideas within Europe and connects Europe to the world. New experiences, relationships, opportunities and knowledge are made possible. This positive impact should not be undermined through unreasonable tax policies.

The democratisation of air travel in Europe since the 1990s is a major success story. Competition has lowered fares and increased choice, allowing more people to see the world. In the 21st century, many families, relatives and friends are spread across Europe and beyond to pursue employment opportunities, education or a certain way of life. Aviation facilitates and supports these cross-border ties.

The industry is also an economic enabler, supporting investment, tourism, trade, and job creation. It directly employs 2 million people in the EU and contributes an estimated €144 billion to GDP. New jobs in the industry generate additional jobs in other sectors, such as logistics and retail, and in the supply chain. As a result, aviation helped to support an estimated 9.4 million jobs and €624 billion contribution to EU GDP in 2016.

Some governments have nevertheless directly taxed airlines to raise revenue. Others have justified such taxes on environmental grounds. However, aviation-specific taxes are a bad policy and not a silver bullet to solve complex issues. These taxes drive up the cost of travel in Europe, which negatively affects air traffic and connectivity, ultimately to the detriment of passengers.

There is little evidence that aviation taxes have any substantial environmental benefit. Recent studies have shown a modest impact on CO2 emissions at best. The revenue from these taxes mostly goes into general government budgets and is not earmarked for environmental initiatives. There are better measures to deal with the core issue: how to achieve real reductions in CO2 emissions from flying.

The industry takes its responsibility seriously and has invested in becoming more sustainable. This includes billions for cleaner and quieter aircraft, research and development of sustainable technologies and low-carbon fuels, as well as operational efficiencies. These efforts will be complemented by the first global climate mitigation scheme of its kind, known as CORSIA, starting in 2021. European airlines have been part of the EU’s Emissions Trading Scheme (ETS) since 2012.

Governments that seek to raise revenue through special taxes on aviation shoot themselves in the foot by weakening an enabler of economic activity: short-term budgetary gains at the expense of the wider and long-term impact on the economy.

A 2017 PwC study showed that abolishing all aviation taxes across the European Economic Area (EEA) would lead to a GDP increase of €12 billion in 2020, rising to €25 billion in 2030 – or a €215 billion cumulative GDP increase in the EEA over a 12-year period. It would create 110,000 additional jobs in 2030, rising from 47,000 in 2020. These cuts would largely pay for themselves by stimulating the economy in terms of employment, productivity, wages, and consumption.

Real-world examples support this:

Denmark abolished its tax in 2007 to enhance competitiveness.

The Dutch government introduced a ticket tax in 2008 and promptly removed it in 2009 given the detrimental impact on the aviation industry and the economy overall.

The Irish government’s removal of its aviation tax led to strong passenger growth and an 8% increase in tourism in 2017.

Austria decided to reduce its aviation tax by 50% from January 2018 to make the country more attractive as a business and tourism destination and increase economic development.

Aviation today is cheaper, safer, more efficient and less polluting than ever before. To preserve the benefits of connectivity, the EU and national governments must focus on concrete actions that support the growth of European airlines and their sustainability efforts, such as incentives that reward cleaner aircraft or public funding for R&D. A4E calls for politically symbolic quick fix aviation taxes to be removed.